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Wednesday, April 22, 2015

Land Acquisition: The Continuation of a Faulty Legacy?

We are pleased to bring you a guest post by Dhruva Gandhi, Sarangan Rajeshkumar and Shubham Jain, all of whom are II year BALLB (Hons.) students at NLS, Bangalore. The authors may be contacted at shubhamjain@nls.ac.in.

The Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment)
Ordinance, 2014 has been a source of stiff resistance for the incumbent Union
Government. Unfortunately, amidst the din both the problems with respect to
land acquisition as well as the probable solutions to the same have received
scant attention. Therefore, it is essential that we move beyond a criticism of
the Ordinance and delve upon these issues.

Inadequate Compensation has now
become synonymous with Land Acquisition in India. It has been a major cause for
litigation and agitation. To appreciate this assertion better, let us have a
look at some facts. In a study, ‘Inefficiency
and Abuse of Land Acquisition in India’, conducted by Prof. Ram Singh, it was
revealed that in 86% of the litigation on compensation with respect to Land
Acquisition in India, the compensation awarded by the High Court (Punjab &
Haryana, for the purposes of the study) was found to be close to 300% higher
(on an average) than that awarded by the District Collectors. In fact, the
study also mentions instances where the compensation awarded by the courts has
been an increase of 800%.

The difference in compensation
awarded by the Court and the Collector can be traced to the difference in the
determination of the market value of the land. A preliminary look, therefore,
at market value is essential. Ideally, market value or true
value of a said piece of land must be determined based on the special
characteristics (eg: quality of soil, quantum of natural resources, nature of
assets constructed etc.) of the land, the price prevalent in the locality and
the potential use of the land. However, in light of the poorly maintained land
records, steep rates of stamp duty and a widespread black market, market value
of land cannot be determined accurately. This is especially true for rural
areas. Therefore, the same is decided on the basis of either the circle rates
(minimum rates defined by state governments at which property can be bought or
sold: here
and here)
or the sale deeds of similar properties in the vicinity. Neither of the two are
accurate parameters.

Whereas circle rates are
significantly under-valued, sale prices, though higher, are usually affected by
features peculiar to the land, dearth of transactions in agricultural land and
are suppressed to evade stamp duty (Nonetheless, circle rates are a better
reflection). In fact, the Parliamentary Standing Committee on Rural
Development, too, in its examination
of the Land Acquisition Bill highlighted the above mentioned points. Moreover,
a study conducted by the Thought Arbitrage Research Institute in collaboration
with the Ministry of Rural Development and the German Development Agency
analysed 7 lakh land transactions over three decades to conclude that the above
mentioned special characteristics
were absent in the calculation of circle rates. Circle rates, thereby, grossly
undervalued the land. It is perplexing to note that the government still
decided to go ahead with these faulty methods to determine compensation. Let us
now move to the main issue.

In spite of directions by courts to
the contrary, Collectors seek to avoid the cumbersome process of determination
of the sale deed that may closely reflect the value of the land to be acquired (apt
sale deed) and compute the said value on the basis of circle rates instead of
market rates (FAQ by Jairam Ramesh on The Land Bill, here). In other
words, they seek to play it safe. An intervention by the Court, then, is a
natural outcome in the event of the price in the apt sale deed being higher.
Every compensation amount is based on the market value of the land. Logically,
thereby, to address the problem of litigation, one needs to look at the concern
with respect to the market value of the land.

Contrary to popular perception, the
Land Acquisition Act, 2013 allows for the erstwhile scheme under the Land
Acquisition Act, 1894 to continue for three reasons. Firstly, the Collector
is vested with discretion to choose between prices as mentioned in the sale
deeds or the circle rates, whichever is higher. However, secondly, he may
choose to disregard any price paid that may appear to him to be non-indicative
of the actual prevailing market value. (Explanation 4, Section 26). And
thirdly, the Collector is barred from the consideration of compensation awards
provided for other lands acquired in the same district. The practical
implication of these three provisions is that the Collector can continue to
assess market value at circle rates and to disregard prices paid for land with
similar characteristics and features in the vicinity. Even now he does not need
to take the trouble to determine the appropriate sale price. The problem of
market value remains unsolved.

Frequently, it is argued that the
solution to the problem of inadequate compensation has been found in the
multiplier mechanism. The multiplier is a factor from 1-2 by which the sum of
the market value and the solatium (compensation for injured feelings) must be
multiplied to arrive at a compensation award. The numerical factor is to be
decided by the State Government. Haryana, for instance, has fixed the
multiplier for rural areas at 2. It is here that an element of caution is
required. Unlike common beliefs, the multiplier may just aggravate the issue.

An illustration helps explain the same. Suppose, the circle rate in a
district for a unit of land is Rs. 500 and the price as mentioned in a sale
deed for a similar property in the vicinity is Rs. 750. Before the new law came
into existence, the compensation not paid to the claimant would have been the
difference between these two amounts with the difference multiplied by a factor
of 1.3 i.e. 1+30% (Solatium was fixed at 30% under the old law). In other
words, the compensation lost out was Rs. 325 [{Rs. 750- Rs. 500}*{1.3} = Rs.
325]. However, with the new law in force, the compensation lost out is the
difference between the two amounts multiplied by a factor of 4 i.e. (1+100%)*2 instead
of 1.3 (Solatium is 100% under the new law and the multiplier has been assumed
to be 2). In other words, Rs. 1,000. [{Rs. 750- Rs. 500}*{4} = Rs. 1,000] Why,
now, would an owner who took recourse to litigation to recover Rs. 325 not take
recourse to it to recover Rs. 1,000? Why would this especially not be the case
when Rs. 1,000 is a statutory entitlement? Courts cannot choose not to enforce
a statutory right. How, then, does the new law mitigate litigation? How have
judicial delays been reduced? How has the issue of “market value” been
addressed? How has compensation been addressed? May the new law not increase
litigation?

It is a disappointment that the
Ordinance does not address any of the questions posed above. Compensation that
neither compels nor incentivises litigation has not been the objective of the
Ordinance. Compensation could have been addressed through better means of
assessment of market values of land (eg: independent surveyors) or innovative
schemes such as auctions of the requisite land (here)
or non-monetary measures. Independent Surveyors, for instance, suitably
qualified in this regard may be appointed to scientifically compute the worth
of the land (India could indeed draw from the practices prevalent in the United
States). Likewise, a non-monetary
measure of compensation that may be used when land is acquired for
non-state purposes is to allot a share either in the newly developed land or
the project as the case maybe.(The
current law has a similar scheme only for urbanisation projects).In the absence of such measures being
incorporated, the Ordinance, then, allows for the continuation of the legacy of
the 1894 Act.

ps: The litigation that may arise out
of market value and compensation may, only be the tip of the iceberg. In view
of the comprehensive scheme of Resettlement and Rehabilitation (R&R)
provided under Schedules 2 and 3 read with Sections 31, 32 and 38(1) of the
Land Acquisition Act, 2013, a failure on part of the collector to provide for
any of the varied entitlements of the displaced, may prove to be a significant
source of litigation. In fact, barring a few exceptions, R&R has always
been ineffective and unsuccessful. Two recent examples of the same have been
witnessed in the states of Odisha and Andhra Pradesh (Report Nos. 7
& 21
of 2014 of the CAG). In light of the above, the provision of a statutory right
of R&R may increase litigation even further, unless the current state of
affairs was to improve dramatically.)

pps: This blog has dealt with several
issues of land acquisition in the past. For previous posts, see here,
here,
here
and here

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